The Scottish Mortgage (LSE: SMT) share price has been a little frustrating this year. Despite strength from tech and AI stocks – which the trust focuses on – it’s only about 5% higher than it was at the start of 2024.
Looking ahead to 2025, however, I remain excited about the potential. Here are three reasons the trust’s share price could rise significantly next year.
Chinese tech stocks are rising
Let’s start with the fact that Scottish Mortgage has substantial exposure to Chinese tech stocks. At the end of August, PDD Holdings and Meituan represented nearly 6% of the portfolio.
These tech stocks have performed well recently. However, given China’s economic struggles, they remain well below their all-time highs.
I believe they have the potential to outperform in 2025. Both operate in the online shopping space and with the Chinese government recently announcing aggressive stimulus measures designed to get the world’s second-largest economy firing, the outlook here is improving dramatically.
Of course, there’s no guarantee they will keep rising (more stimulus from the government may be needed). If they were to continue outperforming, however, it could give Scottish Mortgage shares a boost.
Amazon could drive gains
Next, there’s the fact that the trust has a large position in tech giant Amazon (NASDAQ:AMZN). At the end of August, it represented 6% of the portfolio.
I’ve been saying it for a while now, but I reckon this stock is about to enjoy a major rally. I’m so bullish on it that I’ve actually made it my largest individual stock holding.
One reason I’m bullish is that the company’s earnings are soaring. This year, earnings per share are projected to rise a whopping 63% thanks to an efficiency drive by CEO Andy Jassy.
Another is that the company’s valuation is at historical lows. Currently, the forward-looking P/E ratio is only about 30.
Now, Amazon faces plenty of risks including a consumer slowdown and increased competition in cloud computing. But my personal share price target for the stock in 2025 is $250, which is nearly 40% higher than the current price.
If it was to rise to this level, Scottish Mortgage would benefit.
A Starlink IPO is on the cards
Finally, Scottish Mortgage has a large position in Elon Musk’s space business SpaceX (4.8% of the portfolio at the end of August). And there’s talk of an Initial Public Offering (IPO) for the satellite broadband side of this business, Starlink, in 2025.
There’s no guarantee that an IPO will actually happen next year (it may be pushed out to 2026 or 2027). But if it did, it could substantially boost Scottish Mortgage’s net asset value (NAV).
I would expect demand for the IPO to be very high given Musk’s track record when it comes to generating wealth for investors. And I think this demand could push Starlink stock up substantially after the IPO if it went ahead.
How I’m playing the shares
It’s worth pointing out that while I’m bullish on Scottish Mortgage shares, I do consider them to be quite risky. Given the trust’s focus on disruptive growth stocks, share price volatility is to be expected here.
To manage risk, I’ve kept my holding quite small relative to my overall portfolio. That way, I can benefit from any potential gains without facing huge portfolio losses if the trust underperforms.
The post 3 reasons the Scottish Mortgage share price could take off in 2025 appeared first on The Motley Fool UK.
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Edward Sheldon has positions in Amazon and Scottish Mortgage Investment Trust Plc. The Motley Fool UK has recommended Amazon. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
